The 4 Most Common Compliance Risks & How to Avoid Them (2024)

Mostorganizational leaders simply consider regulatory compliance one of the many costs of doing business today. It’s the norm forbusinessesto be required to comply with at least one, if not multiple sets of regulations.There are plenty of intangible and non-mandated reasons to perform compliance-related duties.Apart from the fines and the bad press, the primary reasons that business owners willingly jump through the necessary hoops most often involve protecting their customers and their own brand.

What Is Compliance Risk?

Compliance risk is an organization’s potential exposure to legal penalties, monetary fines, reputation damages andmaterial loss,caused by afailure to act in accordance withgovernmentlaws, industryregulations, or prescribed best practices.This type of risk is present for every type of organization —public, private, for-profit, nonprofit, state and federal.

Avoiding compliance risks involve staying on top of your industry’s specific legislationregulatory bodies,as well asstate and nationalstandards. Bodies like the Occupational Safety and Health Administration (OSHA) and the Environmental Protection Agency (EPA) regularly deploy regulation updates to a range of different industries while theHealth Insurance Portability and Accountability Act (HIPAA)serves as an example of a complex and often-changing set of laws specific to one industry.

Why Compliance Risk Is a Real Threat

Besides punitive fees, penalties and a sense of professional obligation, there are additional reasons to make your best effort to avoid common compliance risks, which include:

Legal& LiabilityConcerns

Anyfailureto complyor outright negligence may result in further legal troubles for your business. Compliance helps you to avoid additional legal issues that include work stoppages, lawsuits that could result in the ultimate shutdown of business, and hefty legal fees.

Data Security

Many times, regulations and standards provide insights into your industry that serve to help you sharpen your business operations.PCI,HIPAAandGDPRare just a few regulatory bodies that monitor all the latest in risks that could affect consumer data. By maintaining regular compliance, your organization is automatically implementing the latestprotectionsagainstdata breaches and other risks.

Business Reputation

Experiencing abreach, or receiving a fine for non-compliance,can be a huge blow to the upstanding reputation that your brand has worked hard to build.Customers and industry peerswill have doubts about doing business with your organization for years to come.

Any time you can letstakeholdersknow yourorganization isfully compliant with allrelevantstandards,it’sgoodforpublic relations. Each time you bring in a professional auditing team and receive authoritative certification, you can place that information on your website to let everyone know. And this works towardsretaining, andearning,trust and loyalty.

4 Most CommonTypes ofCompliance Risk

Every modern business, regardless of industry, faces a certain degree of risk. Risk has always been intertwined with any type of business endeavor, and good business leaders have adapted to risk related to their business by understanding it and finding ways to combat it.

The need for risk management has never been greater. Leaders in areas like healthcare and the credit card industry have taken note over the past several decades.Likewise, governing bodies have developed compliancestandards to help organizations avoid and mitigate risk.

1. DisclosureofPHI
2. Breach ofPayment CardData
3. Infringement ofPersonalData PrivacyRights
4. Lack of Disaster Preparedness

Disclosure of Protected Health Information (PHI)

Many of the common violations to HIPAA regulations involve the organizations not performing the right risk analysis and procedure reviews to ensure patient information is kept secure.Securityprotocols need to be implementedfor compliance andto prevent the mishandling and misuse of electronic patient information.

HIPAA lays out standards designed specifically to reduce the risk of disclosing PHI.

• Misplaced Paper-Based Medical Records–Paper forms left onthe receptionist’s desk can be read by other employees who should not have access to this information, or by otherindividuals. All paper-based records need to be kept in alocked locationthat only allows access by authorized personnel. In addition, health organizations need to have proper medical record handling procedures to prevent the information from being misplaced in the office.
• Stolen or Lost Electronic Devices–Today, PHI is regularlyaccessed onsmartphones, tablets, and laptops.So,medical personnel must have safeguards in place to prevent unauthorized access and viewing of this data in casea device is lost or stolen. The organization needs to develop the appropriate encryption methods for electronic devices used in the medical facility, as well as have procedures for employees to report lost or stolen devices in a timely manner.
• UnauthorizedAccess of Patient Information– Employees must be aware that talking about, sharing files, and taking patients’ photos can be a privacy violation of the HIPAA. If other people overhear, read or see the information, they could use it to the detriment of the patient or the medical practice. Employee training that focuses on HIPAA regulations and prevention methods to stop the inappropriate disclosure of patient information can help workers stay in compliance.

Breach of Payment Card Data

The Payment Card Industry Security Standards Council—founded and formed by major payment brands like Visa, MasterCard, American Express, JCB International and Discover Card Services—agreed toincorporate thePCI Data Security Standard (PCI-DSS)into each of their security programs. This standard has become the best weapon against relentless hackerstargetingpayment carddata.

A Qualified Security Assessor (QSA), certified by the PCI Security Standards Council, can help you stay on track to protect your customers’ data.

Related article: theAdvantage of Combining HIPAA and PCI Compliance Efforts.

Infringing on Data Privacy

After two years of preparation for companies worldwide, the General Data Protection Regulation (GDPR) took effect. The EU createda set of data privacy laws in the interest of protecting consumers’ confidentiality when making transactions inEurope and around the world.
The EU wanted to place more control of data into the hands of its citizens by developing and mandating requirement matters that include the following:

• Data Portability
• Data Breach Notification
• Data Protection for Children
• The Right to Be Forgotten
• The Appointment and Training of a Data Protection Officer
• The Easy Identification and Availability of Data Upon Customer Request

This mandatory regulation comes with stiff penalties and fines for those not in full compliance, keeping companies on their toes all around the globe. Companies that are uncertain as to whether they are subject to the GDPR may wish to consult with an auditing firm for optimal risk management.

Lack of Disaster Preparedness

Never underestimate the potential power of a natural or man-made disaster on your computersystem.It is more important than ever to examine every possibledisasterscenario that might affect your business in the event of a flood, hurricane, wind storm, tornado or fire.

Whilebusinesscontinuity attends to the functioning of daily business matters in the event of a disaster, yourdisasterrecoveryplanfocuses supporting IT systems that support fundamental business functions.Theplan lays out the processes and procedures that your team will employ to retrieve data and restore basic operating functions to your business asquickly as possible.Although businesses are increasingly storing some portion of their data in thecloud, they must still be able to perform daily technology-based duties on the premises of their organization.

This type of plan is not only fundamental tobusiness continuity, it’s actually requiredby theISO 27031standard andforSOC 2,NIST,andHIPAA compliance.A breach that occurs during a time ofvulnerabilitydue to a natural disasteror cyber event, couldbe penalizedif preparation could have prevented it.Core elements of an effectivedisasterrecoveryplan include:

• Identifying known and potential weaknesses, such as a strong potential to experience flooding or tornadoes.
• Strategizing to minimize the duration of a serious disruption to business operations.
• Facilitating effective coordination of recovery tasks by developing teams for various duties.
• Simplifying recovery efforts by considering issues like potential relocation options.
• Performing test drills to identify and correct problems.

Related article:HIPAA Requirements for Disaster Recovery in the Cloud.

Build a Framework forComplianceRisk Management Success

Like any other facet of your business, effective risk management control starts by working with your management team to develop and design your organization’s shared vision, recommendsKnowledgeLeader. While your company’s shared vision is often more aspirational, and even somewhat nebulous without a distinct plan of action, your risk management game plan involves defining concrete objectives, laid out in clear terms.

Organize ComplianceEfforts

Your management team willleadthe primary phase of risk management control,identifying and categorizingthe various risks that run throughout your organization. Each team member will focus on a particular risk factor, relevant to their area, monitoringthat risk and ensuringcompliance with risk management procedures.

By developing a coherent and consistent framework, methodology and language for your ERM, you will build a firm and effective foundation for risk management control.

Monitor Risks and Maintain Compliance

Effective risk management control should be dynamic. Your ERM team needs to continually monitor the risks, as well as controls that you have set in place to maintain your organization’s shared vision. Some of the key factors of your ongoing ERM plan might include the following:

• Informstaff oftheirresponsibilitiesand role in compliance efforts.
• Monitorbusiness trends, financials, datamangement, and regulatory updates to anticipate new risks.
• Changeactivities should be handled carefully.
• Conductregular internalaudits.

Put Your Risk Management Control PlanIntoAction

Risk management control is certainly challenging, but with the right plan and a committed team, you can keep your company, as well as all other stakeholders, safe, satisfied and profitable. Contact I.S. Partners for more information.

Thisarticlewas originally publishedin2018 and has since been modified and updatedmultiple timesto reflect the most accurate information.